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But its communique noted that the criminal practice, worth up to €1.2 trillion a year worldwide, creates "high risk ... to the stability of the financial system."

One of the bill's sponsors, home affairs commissioner Cecilia Malmstrom, added that it helps people who peddle drugs and guns or who shut up women in brothels to enjoy respectability and luxury lifestyles. "Dirty money has no place in our economy," she said.

Other proposed sanctions against rule flouters include withdrawal of bank licences if a bank is involved, banning executives from holding board seats and public naming and shaming.

The new bill says every company must hold reliable information on the identity of its ultimate owner and to divulge it when asked by investigators.

It says traders in "high value goods," such as diamonds or furs, should make background checks on clients who hand over €7,500 or more in cash and to report suspicious transactions.

It says casinos, including online casinos, should do checks on transactions of €2,000 or more.

It also urges EU countries to create "Financial Intelligence Units" which are to exchange information "spontaneously or upon request" to make it easier to follow cross-border money trails.

The draft law is the commission's third attempt to firm up standards since 2005.

A recent series of scandals shows there is plenty of room for improvement.

The US in December ordered the UK-based HSBC bank to pay a €1.4 billion fine for laundering cash for Colombian and Mexican drug lords.

The US in August also accused the UK's Standard Chartered Bank of hiding €201 billion of illegal Iranian transactions.

Who's money is it anyway?

Some MEPs, who, together with EU countries, will negotiate the final form of the bill over the next two years, voiced concerns it might violate data privacy.

But others said it does not go far enough.

"As far as provisions on the 'beneficial owner' are concerned ... the opportunity to efficiently identify and combat money laundering and fiscal evasion has been lost," an independent Italian MEP, Sofia Alfano, who chairs parliament's committee on organised crime, said on Tuesday.

The Brussels-based NGO, Transparency International, noted: "Centralised national registries of beneficial ownership would make it easier for banks and other institutions to identify who the ultimate owners of companies and trusts are."

In most firms which sell real products or services, it is clear who owns what.

But people who want to hide their wealth create shell companies in lax jurisdictions such as Cyprus, Luxembourg or the UK, which are controlled by nominee directors or trustees on their behalf. The shell companies then become the beneficial owners of new shell companies in other places, multiplying layers of secrecy.

In one loophole in the EU bill, a person who owns less than 25 percent of a firm does not need to be declared.

The draft law also does nothing on "bearer shares."

Bearer shares are documents the physical possession of which confers company ownership, meaning they can be passed around to avoid detection. The UK, the EU's biggest financial centre, is one of the last jurisdictions in the world which still allows them despite World Bank pleas for abolition.

The EU bill says only that they are a "risk."

Laws don't stop crime

Loopholes aside, Transparency International added that the real problem is not lack of rules but the lack of will to enforce them.

A study on member states' compliance with existing laws by the Belgian branch of accounting firm Deloitte, published in 2011, showed big gaps in national financial cultures.